For many small business owners, the administrative burden of hiring, paying, and managing employees is a time-consuming distraction from their core business. As they attempt to handle these issues on their own, oftentimes the business suffers. Consequently, many small businesses are turning to an alternative method of hiring and managing employees. A rapidly growing trend is to outsource the entire Human Resource function to a “professional employer organization” or PEO.
In order to provide you with some insight into PEOs, I decided to team up with Susan Fronk, a small business advisor at Administaff, the company that founded the industry, to find out how they work and the benefits of using one. Here is what I found out.
Some PEOs provide a complete turn key solution for managing Human Resources including recruiting and hiring, payroll processing, worker’s compensation, training and development, performance management, government compliance, employer liability, benefits management, safety, and myriad administrative tasks.
Here’s how it works. You as the business owner contract with the PEO to assume certain Human Resource duties and responsibilities, which allows you to focus your full attention on your core business. The PEO assumes and manages the administrative aspects of your relationship with employees as well as many other employer-related responsibilities and risks. You continue to manage your employees and run your business as you see fit, without all the distractions and administrative burdens of being an employer. The return on your investment can extend well beyond the potential savings on hard costs such as medical benefits and workers compensation insurance to significant improvements in performance, organizational efficiencies, revenue generation, and profits.
Most small business owners do not personally possess or employ people with Human Resource (HR) experience or expertise. A PEO already has experienced HR professionals with expertise in benefits, payroll, OSHA compliance and just about anything else an organization might need relative to being an employer because this is their core business. By pooling the employees of a small business with a larger group of employees from other small businesses, a PEO can offer benefits such as health insurance and retirement plans at much lower costs than a small business can afford on their own due to the economies of scale. So, instead of dealing with the annual aggravation of shopping for benefits like health insurance, a small business can rely on their PEO to do the legwork and secure the best plans for the best rates. In many small businesses, the savings on medical insurance alone offsets the cost of having a PEO.
Recruitment and selection processes including pre-employment testing is another area in which a PEO can help small businesses. Without effective candidate screening processes, you risk placing the wrong person in the job, leading to costly turnover, poor performance, and lost productivity. A PEO can help you develop a sound selection process including pre-employment tests to predict employee loyalty as well as success in a specific job. While these tests aren’t foolproof, they can prevent many costly hiring mistakes.
Recruitment and selection assistance can be a significant benefit to small business owners who often dread the prospect of reading mountains of resumes and conducting interviews for prospective hires. A PEO can take over much of this responsibility and deliver qualified candidates quickly. Then, the PEO handles the necessary paperwork for the new hire. Some PEOs have an entire division devoted to recruiting and selection services to help small business owners attract, screen, hire, and on-board the right employees. Filling open positions quickly can save an employer considerable downtime.
Given the many advantages to small businesses, it is not hard to understand why PEOs are gaining such popularity. Many small business owners give their PEOs the credit for helping them grow their businesses quickly. For more information on PEOs, contact The National Association of Professional Employer Organizations (NAPEO).The organization’s Web site describes how PEOs work, the benefits of using one and guidelines for selecting one that’s right for your business and industry.
PEOs may not be the perfect fit for every small business, but it seems like something every small business should check out and see if it is a good fit for them.
If you would like to contact Susan Fronk you can do so through her LinkedIn page or email her at Susan_Fronk@administaff.com.
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If you would like to contact me, you can do so by emailing me at mike.clough@bestbizpractices.org or visiting my LinkedIn page.
Posted by: Mike Clough
